The U.S. Securities and Exchange Commission (SEC) charged Galois Capital Management LLC, a Florida-based crypto-focused advisory firm, with failing to safeguard clients’ assets and misleading investors about its redemption practices.
How did Galois Captial fail to safeguard the client’s assets?
The Investment Advisers Act’s Custody Rule requires investment advisers to maintain a standard when holding or having access to client assets. It aims to protect clients’ assets from being lost or misused.
According to an SEC report, Galois Capital failed to comply with the Investment Advisers Act and held to the client’s crypto assets in online trading accounts on platforms like FTX, which were not qualified custodians. This led to half of the assets being lost with the collapse of the FTX.
How did Galois Captial mislead the investors?
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The advisor, Galois Capital, misled the investors with its procedures and policies. Few of the investors were informed that to redeem their investments, at least five business days’ notice is needed before month-end, while other investors were allowed to redeem with shorter notice periods.
The Penalty and the Settlement
In order to settle the charges pressed by SEC, Galois Capital agreed to pay a hefty penalty of $225,000. This amount will be distributed to the investors who were misled and to those whose assets were sabotaged. Galois Capitol also consented to a cease-and-desist order, censure, and other penalties.
With this case, Corey Schuster, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, commented, “By failing to comply with Custody Rule provisions, Galois Capital exposed investors to significant risks” and “We will continue to hold accountable advisers who violate their core investor protection obligations.”
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